8.14 What order might you make? Rule 44.3(6)

The menu of orders given in Rule 44.3(6) is set out in descending order of preference, although (a) and (b) more or less tie at the head of the table with (c) not far behind. Having concluded a party should pay costs, you must then consider whether he shall be ordered to pay the whole of the costs, or some lesser proportion or amount. As has always been the case, it is probable a proportion only will be awarded in an accident claim where a claimant has been held to be partly responsible for what occurred, the starting point being a reduction equal to the percentage or proportion of the contributory negligence as found. Costs orders of less than 100% will not be uncommon, however, having regard to the conduct of the parties.

As well as being able to allow a proportion of the costs, a stated amount, or costs from or until a certain date only, it is also permissible for the court to stipulate that the paying party pay the costs in relation to particular steps taken, or a distinct part of the proceedings. On very infrequent occasions it may be practicable to isolate a discrete activity within proceedings, but this is likely to be rare, and it is even less probable that the court or practitioners will find it possible to attribute specific costs to individual issues. More often than not issues overlap; frequently they all but merge, and a costs order in accordance with Rule 44.3(4)(6)(e) or (f) should be made only exceptionally.

8.15 Costs of issues

Costs orders are now more ‘issues based’ than under former procedures, the rule in Re Elgindata (No. 2) [1993] 1 All ER 232 being less relevant than it was. By way of brief, and simplistic summary, this case decided that the general rule of costs following the event did not cease to apply merely because the successful party had raised issues, etc which had failed. However, entitlement to costs might be reduced or disallowed where the unsuccessful issues had caused a significant increase in the length of the proceedings.

Since the CPR came into effect, a party raising a number of issues but failing on some, cannot be confident of recovering the whole of the costs, but rather a proportion according to the measure of success. This is of general importance, both to costs orders at conclusion of a trial and of interim applications. Historically the court tended to award costs to a party broadly successful in an interlocutory application. Part orders, though not unknown, were far from commonplace. Where an interim application succeeds on some points, but is too ambitious as to others, you should consider ordering the respondent to the application to pay a proportion only of the costs, your order reflecting the level of success.

There are conflicting High Court decisions as to the continuing validity of the concepts of Re Elgindata (No. 2), Mr Justice Rimer considering it to have been less effected by the CPR than Mr Justice Neuberger.

In AEI Rediffusion Music Ltd v Phonographic Performance Ltd [1991] 1 WLR 1507, Lord Justice Mummery (sitting with Lord Woolf, Master of the Rolls, and Lord Justice Mantell), explained that liabilities for costs required consideration to be given to all relevant factors, including the positions taken by the parties in the light of the outcome, both overall and on the different issues on which there had been evidence and argument; the terms of proposals and counter proposals from the outset; and the points taken by the parties at the hearing.

The judgment of the Court of Appeal appears to make absolutely clear the requirement that costs orders should be issues based, and this approach is reflected in the judgment of Mr Justice Neuberger in Harrison v Bloom Cammillin, unreported, 4 February 2000. In that case it was accepted that the CPR had effected considerable change, and that whilst Re Elgindata (No. 2) should not be overlooked, it no longer represented the law. The judge referred with approval to the comments in the White Book on Part 44.3.

In DEG-Deutsche Investitions v Thomas Koshy [2000] TLR 29, and again in the linked case of Gwembe Valley Development Co Ltd (in Receivership) v Koshy (No. 2) [2000] TLR 247, Mr Justice Rimer was of the view that the discretion of the court to make a costs order other than one that followed the event was little changed, the rules having merely been made more specific as to the factors which the court ought to consider. The judge felt it was difficult to detect in Rule 44.3 what the Master of the Rolls had called the ‘change of emphasis’ for the courts to make different costs orders to reflect the outcome of the issues.

More recently Mr Justice Neuberger suggested relevant factors upon considering a costs order where an action involved a number of issues but a party was not wholly successful on all points in Antonelli v Allen (2000) The Times, 8 December. In that case the otherwise successful claimant was ordered to pay 75% of the defendants’ costs. The judge said that where the successful litigant was unsuccessful on some of the issues the following factors were relevant when considering costs:

a)   the reasonableness of the successful party taking the point on which he was unsuccessful;
b)   the manner in which the successful party took the point and conducted his case generally;
c)   whether it was reasonable for the successful party to have taken the point in the circumstances;
d)   the extra costs in terms of preparing for the trial and preparing witness statements, documents and so on;
e)   the extra time taken up in court over the particular issues;
f)    the extent to which the unsuccessful point was inter-related, in terms of evidence andargument, with the points on which the successful party succeeded;
g)   the extent to which it was just in all the circumstances to deprive the successful party of all or any of its costs.

In Shirley v Caswell (2000), The Independent, 24 July, the Court of Appeal held that in circumstances where a claimant succeeded on some issues, failed on others, and abandoned still others, the judge would exercise discretion correctly by awarding the claimant a proportion of the costs in respect of the successful issues, but as regards the abandoned issues, these should be left to the costs judge, who should disallow the costs of those issues on detailed assessment, as costs unreasonably incurred in the conduct of the litigation.

Both Antollelli v Allen and Shirley v Caswell demonstrate the need to consider apportionment where the circumstances justify it. When required to decide whether to ‘tailor’ your order for costs having regard to the issues, it is suggested you should find it possible to accept Rule 44.3 which very firmly directs towards an issues based approach, leading to apportionment on the proportion of issues sustained, and issues either rejected or not accepted.

8.16Costs incurred before proceedings: Rule 44.3(4)(d) and (g)

Ordering a party to pay costs incurred before proceedings were commenced may arise where the court is satisfied that it was reasonable for the costs to be incurred, and that they related to and advanced the subsequent proceedings (see In re Gibson’s Settlement Trust [1981] Ch 179 at pages 185-87). Less clear is the provision enabling the court to award interest on costs from a date preceding judgment, and orders to this effect should be made sparingly. However, circumstances may arise where an ultimately successful party has to borrow money to finance proceedings, but does not obtain judgment until many months later. You may need to consider whether the particular circumstances justify an order that the paying party pay the interest running from when the loan was paid to the receiving party.

Unless you order interest on costs from a specific date, it will run from the date upon which the order is made, even if quantification is not carried out until later (see Rule 40.8). Remember that the court has power to order interest to run from a date later than judgment. It is reasonable for a receiving party who has paid sums on account to his lawyers over a period to expect interest to accrue earlier than when the costs are quantified. If he has not done so interest from judgment may be unfair to the paying party.

8.17 Standard or indemnity basis costs?

Having decided a party is entitled to costs, and whether he should recover all or but a proportion, you will need to consider if the costs are to be assessed on the standard basis or the indemnity basis.

Submissions for indemnity basis costs should not be frequent, but may follow if the court is satisfied there has been an element of culpability in the paying party’s conduct of the litigation, for example where the court is satisfied there has been:

a)deceit or underhandedness;
b)abuse of procedure;
c)a failure to come to court with open hands;
d)a failure to come to court with clean hands;
e)lack of proportionality;
f)voluminous and unnecessary evidence;
g)extraneous and/or ulterior motives for the litigation.

However, costs on the indemnity basis are not appropriate merely because it can be shown that the claimant would have been better advised to drop the matter (see Joseph v Boyd and Hutchinson, unreported, 13 January 1999) or against a claimant who may have inappropriately sought to take advantage of a right given him by statute, but did not improperly do so: see

Raja v Rubin[1999] TLR 288, where a creditor who waived his right to a dividend under an individual voluntary arrangement later unsuccessfully sought to rely on section 263(3) of the Insolvency Act 1986 to oppose a subsequent agreement, but was held not to have acted improperly in availing himself of the provisions of the Act, so the costs order against him was on the standard, not the indemnity basis.

8.18 Costs of counterclaim: Rules 40.13 and 44.3(9)

Before the CPR the court often made orders whereby the defendant was to pay the costs of the claim, and the claimant the costs of the counterclaim. As a result the taxing officer was required to apply the principles laid down in Medway Oil and Storage v Continental Contractors [1929] AC 88, and by some means, often well-nigh impossible, had to discern work specifically attributable to the claim or the counterclaim, the rule working particularly unfairly against defendants.

Generally, such orders should no longer be made. Rule 40.13 provides that where the court gives judgment for specified amounts both for the claimant on his claim and against the claimant on a counterclaim, if there is a balance in favour of one of the parties it may order the party whose judgment is for a lesser amount to pay the balance. Although the rule permits a separate order as to costs against each party, it is in everyone’s interests to ensure the exercise is kept as straightforward as possible.

Rule 44.3(9) mirrors 40.13 as regards damages. It is far more efficient to avoid making cross orders, and instead to formulate a single order which adjusts the costs entitlement according to the measure of success of the respective parties. Evading the issue by deciding to order detailed assessment is unhelpful, not only for the costs officer who has to attempt to unravel what will have become an unnecessarily complicated situation, but also for the parties, who will become involved in significantly greater expense, coupled with uncertainty.

8.19 ‘Bullock’ and ‘Sanderson’ orders

Claimants who take proceedings against two or more defendants but are not successful against all may find their triumph short-lived if the costs of the successful defendants then have to be met. If the claimant can satisfy you that he acted reasonably in suing all defendants, you may wish to exercise your discretion in making an order that will reduce or even eliminate the liability for costs. There are two forms of order that facilitate this, both inaccurately but not uncommonly referred to as ‘Bullock’ orders, although more properly given the titles, ‘Bullock’ or ‘Sanderson’ orders.

‘Bullock’ orders arise from Bullock v London General Omnibus [1907] 1 KB 264, which created an indirect form of order where the claimant is required to pay the costs of the successful defendant, which are then added to the costs against the unsuccessful defendant. Where the costs of the successful defendant are quantified by detailed assessment or otherwise, the defendant ultimately liable must be given notice of the hearing, and is entitled to appear and make representations.

‘Sanderson’ orders were devised by the slightly older case of Sanderson v Blyth Theatre [1903] 2 KB 533. Here the mechanism is more direct, the claimant is not involved and the unsuccessful defendant is ordered to pay the costs of the unsuccessful defendant.

The decision as to which, if any, form of order should apply is for the discretion of the court. In Mayer v Harte [1960] 2 All ER 840, the Court of Appeal conducted a comprehensive review of the authorities.

For a claimant to justify an order enabling him to recover or escape liability for a successful defendant’s costs, you must be satisfied it was reasonable for the additional defendants to have been sued. You are entitled to be satisfied on this point if the claimant can establish there was reasonable doubt as to which defendant was liable, but not in circumstances where it was clear or ought to have been that a successful defendant ought not to have been brought into the proceedings; or where there were different causes of action; or the facts were different. If satisfied the claimant knew or ought to have known there was no liability on the successful defendant, the proper order is likely to be for the claimant to pay costs without a remedy over against anyone else.

Where the unsuccessful defendant is insolvent and unlikely to be able to pay the costs you may expect the claimant’s advocate to urge a ‘Sanderson’ order, the successful defendant’s advocate pressing for a ‘Bullock’ order. The arguments are well-balanced and the outcome will depend upon the circumstances of the particular case. In this case the order may be as important as the amount of any judgment.

Funding Arrangements

8.20 Introduction

The Access to Justice Act 1999 facilitated recovery from paying parties of success fees and insurance premiums paid or payable in respect of possible costs liabilities. The Civil Procedure (Amendment No. 3) Rules 2000 came into force on 3 July 2000.

8.21 Funding arrangements: law and procedure

Funding arrangements, often but not wholly accurately referred to as Conditional Fee Agreements (‘CFAs’), are defined in Rule 43.2:

‘(k)‘funding arrangement’ means an arrangement where a person has:

• a)entered into a CFA which provides for a success fee within the meaning of section 58(2) of the Courts and Legal Services Act 1990;
• b)taken out an insurance policy to which section 29 of the Access to Justice Act 1999 (recovery of insurance premiums by way of costs) applies; or
• c) made an agreement with a membership organisation to meet his legal costs;

  (l)‘percentage increase’ means the percentage by which the amount of a legal representative’s fee can be increased in accordance with conditional fee agreement which provides for a success fee;

  (m)‘insurance premium’ means a sum of money paid or payable for insurance against the risk of incurring a costs liability in the proceedings taken after the event that is the subject matter of the claim;

  (n)‘membership organisation’ means a body prescribed for the purposes of section 30 of the Access to Justice Act 1999 (recovery where body undertakes to meet costs liabilities);

  (o)‘additional liability’ means the percentage increase, the insurance premium, or the additional amount in respect of provision made by a membership organisation, as the case may be.’

Put at its most basic, before entering into a CFA the legal advisers of a party will calculate the likelihood of success, having first carried out enquiries to ascertain enough about the facts, potential evidence, and issues to be able to make a risk assessment. The legal adviser will then decide if he is prepared to accept the risk of running the case without any guarantee of being paid, but in the event of success recovering from the paying party remuneration at a higher rate than his normal costs, namely base costs together with a percentage uplift, or the price paid for an insurance policy (the ‘additional liability’). The riskier the case the higher the uplift, so a defendant contesting an issue wholly reasonable for him to oppose must anticipate the prospect of having to pay significantly greater costs if he loses than if he contests a matter upon which he ought to have conceded.

Funding arrangements are not limited to claimants or individuals, and any party to proceedings, including incorporated bodies, can enter into funding arrangements with their legal advisers.

The extent, if any, to which enquiry should be made as to the possible merits of a case before entering into a CFA is as yet undecided. Some practitioners reject the suggestion that there should be an obligation to find out at least something about the nature and merits of a claim before entering into a CFA. They assert that if, for example, a client says he or she recalls nothing about the accident it is proper to accept the case without further enquiry on the basis of 100% success fee. If shortly thereafter it is ascertained the client was sitting in his or her front garden when an out of control vehicle came through the hedge and caused injury, that will not have any effect upon the level of success fee, that is, the additional liability. Not all would agree that this was reasonable, proportionate, or furthering any component of the overriding objective.

The point is likely to require a decision at high level, as will the practice by solicitors of purchasing after the event insurance at the very outset of receiving instructions, often at significant expense, and expecting to recover the insurance premium from the other party or insurance company if the claim settles. Paying parties may be expected to assert that unless and until proceedings have been issued, the claimant is not exposed to any potential liability for the other side’s costs, with no attendant risk to insure. Claimant may contend that if insurance premiums are recoverable only in cases where proceedings have been issued, unnecessary litigation will be inevitable, and the insurance market will be affected. Although the court should have regard to the overriding objective, this may in fact diminish in stature and importance, for whilst there have been no reported decisions during 2000, it may be unrealistic to expect the arguments of defendants to prevail. In a House of Commons debate on 19 December 2000, Mr David Lock, the Parliamentary Secretary, Lord Chancellor's Department, said:

The Government's policy is that the premium paid for cover against the risk of having to pay legal costs should be recoverable from the losing opponent. That ensures that the damages paid to claimants are not unreasonably eroded. In our view, that is the effect of the Access to Justice Act 1999. Although the interpretation of individual agreements is a matter for the courts, the Government believes that recoverability includes premiums on policies taken out before proceedings are issued in any particular case.'

Any anxieties that costs will be contained should easily be dispelled.

Collective conditional fees were introduced on 30 November 2000, and are governed by the Collective Conditional Fee Agreements Regulations 2000. Purchasers of legal services and suppliers are able to enter into a collective CFA for the direct supply of services in bulk, either to the purchaser, such as a large company, or to third parties, such as trade union members or insurance policyholders. Each case pursued under a collective CFA is required to be subject to its own risk assessment.

The Government’s expectation is that collective conditional fees will allow economies of scale, reduce regulatory burdens on business and membership organisations and increase competitiveness among the providers of legal services. Whether conditional fees will reduce costs, one of the main aims of the civil justice reforms, may be questionable.

Conditional fee agreements are governed by the Conditional Fee Agreements Regulation 2000, which came into force on 1 April 2000. The Law Society’s Model Conditional Fee Agreement is reproduced in Cook on Costs 2000.

Solicitors will enter into funding agreements with their lay clients, and advocates with solicitors, the percentage uplift almost certainly differing in each agreement. Counsel will quite often not become involved in a case until it approaches trial. It is not necessarily the advocate who takes the greater risk, with a greater percentage uplift in consequence. Although the advocate will conduct the final ‘battle’ most, if not all, of the preparation and planning should have been carried out by the solicitor.

‘Counsel’ is not limited to barristers, but defined so as to include a solicitor advocate provided he is not a partner or employee of the solicitor or firm conducting the matter (see Practice Direction, paragraph 20.2).

Funding arrangements may include insurance premiums paid or payable, both for the legal advisers’ own costs, and those of the other parties.

8.22 Costs of interim applications and funding arrangements: Rule 44.3A

Parties proceeding with the benefit of funding arrangements are required to file and serve notice of the fact, but not to provide any details that would enable the opponent to register or calculate the percentage increase that will be sought in the event of success. Practice Direction, section 19, gives details of what information is required. Notice of funding is included in Form N251.

Rule 44.3A(1) prohibits the assessment of additional liability until the conclusion of the proceedings, or part of proceedings, to which the funding arrangement relates. A costs order for an interim application made in favour of a party with a funding arrangement should therefore include an assessment of base costs only. Receiving parties represented under a CFA cannot recover an additional liability for any periods in the proceedings during which there was a failure to provide information about a funding arrangement as required by any Rule, Practice Direction, or court order, although as with any other breach the court is able to give relief against sanctions, in respect of which reference should be made to Rule 3.9, and the checklist in Rule 3.9(1) (see Practice Direction, paragraph 10.1).

8.23 If the proceedings have not concluded, can the CFA party recover any costs?

You are permitted to summarily assess the costs of a party represented under a funding agreement, and ought to do so, but there is a possibility that if that party loses, his solicitor will not be entitled to any costs, even those of the successful interim application. However some forms of CFA make specific provision for interim hearings, enabling the solicitor to recover the base costs whatever the final outcome. In those cases, it is the responsibility of the advocate to provide the details, and if necessary produce the agreement so you can read the particular provision and see that the document has been signed.

Upon making a summary assessment in favour of a party with a funding arrangement, you should defer payment in some way unless satisfied the receiving party is at the time liable to his legal adviser for an amount equal to or greater than the costs allowed. As to deferring payment the Practice Direction suggests that payment be postponed or paid into court, and not be enforced until further order (see Practice Direction, paragraphs 14.3; 14.4).

Ordering payment into court may be practicable or, if the parties’ solicitors agree, an order that the money be paid into a bank or building society account in the solicitors’ joint names. Deferring payment may not always be necessary or advisable. Insurance companies and trades unions should almost certainly be good for the money when the liability to pay arises, but individuals as well as many companies and other organisations will be more problematic. Where large sums of money are involved, even substantial national or multi-national companies and trade unions should be required to produce the money for payment into court, for the most well-established organisation can go to the wall. It is for the advocates to assist with ideas, and you are entitled to require them to do so.

8.24 The CFA client is the paying party

88. If an order for costs is obtained against a CFA client in respect of an interim application, you may wish to inhibit enforcement pending the final outcome, perhaps even adapting the Lockley Order described at paragraph 8.41 below. Many CFA clients will be people with access to funds, including business concerns of all kinds, and there is no reason in most cases why payment should not be ordered within the customary 14 days: see Rule 44.8 for time for payment. Instalments can always be ordered in appropriate cases, although you should bear in mind the long-term effect on the paying party if the costs award is registered against him at the Registry of County Court Judgments. Any judge who sits in the county court should be familiar with the Register of County Court Judgments Regulations 1985, amended in 1999 to address orders made for summarily assessed costs.

8.25 Costs at conclusion of case or that part to which the funding arrangement applies

You have a number of options:

a) make a summary assessment of all costs, including any additional liability, i.e. percentage increase, insurance premium, membership organisation provision, etc.;
b) make a summary assessment of the base costs, but order detailed assessment of any additional liability;
c) make an order for detailed assessment of all the costs.

The existence of a CFA or other funding agreement is not itself a sufficient reason not to carry out a summary assessment (Practice Direction, paragraph 14.1). Until the new procedures become familiar, some judges at final hearing may consider a detailed assessment of the additional liability preferable, although this ought not to be the case for more than a few months. In any event, failing to make a summary assessment of the base costs will rarely be appropriate, although when ordering a detailed assessment of the base costs as well as the additional liability, you must not overlook an interim costs order, requiring the paying party to pay something on account of the estimated total costs. Rule 44.3(8).

When assessing base costs at an interim stage, remember to identify separately profit costs, counsel’s fees and other disbursements. A failure to do so will make final assessment of the costs much more difficult, for the success fee percentage may differ between solicitor and counsel, and even between different stages in the proceedings. Ensure that costs orders recite their component parts, whether the figure is assessed by you, or agreed between the parties.

The level of additional liability negotiated with the receiving party may include elements which cannot in any event be recovered from the paying party, so unless the receiving party’s legal representative is prepared to be forthcoming as to the components, you may find it necessary to carry out some analysis of the position.

8.26Rule 44.3B

Rule 44.3B imposes a number of limitations on recovery from another party to the proceedings, although these do not apply to an assessment of a solicitor’s bill to his client.

The limitations are:

a) any proportion of the percentage increase relating to the cost to the legal representative of the postponement of payment of fees and expenses;
b)any provision made by a membership organisation which exceeds the likely cost to that party of the premium of an insurance policy against the risk of incurring a liability to pay the costs of other parties;
c) any additional liability for any period in the proceedings during which there was a failure to provide information about a funding arrangement as required by rule, practice direction or court order;
d)any percentage increase where a party has failed to comply with -

• a requirement in the costs practice direction; or
• a court order,
• to disclose in any assessment proceedings for setting the percentage increase at the level stated in the CFA.

The percentage increase will be calculated by the legal representative according to the facts and circumstances as they reasonably appeared to the solicitor or counsel to him at the time of entering into the funding arrangement, or any variation (Practice Direction, paragraphs 11.7; 17.8(2)) and although the percentage can in due course be challenged by the paying party, the court is not to apply hindsight. The percentage increase may include provision for the fact that other cases dealt with by the solicitor or barrister will be lost, with the intention that the success fee on the winning cases underwrites the failures. This is not what was intended. If this is capable of being demonstrated, you should reduce the percentage by a proportion appropriate to this non-recoverable element.

8.27 Variation of conditional fee agreements

The practice is likely to develop for varying percentages to be applied as a case progresses. This is a matter upon which guidance may be welcomed in future from the higher courts.

When a client instructs a solicitor little may be known of the circumstances or evidence likely to be available, and calculating the prospects of success will be difficult, even after a certain amount of enquiry. The practitioner, upon carrying out a risk assessment, may resolve the case can be accepted only if the client agrees to a substantial percentage uplift, but before long it may become apparent the defendant is willing to accept liability, with only the amount for which he is liable remaining in dispute. Depending upon the extent of the disagreement over amount, the risk element may diminish very substantially, and if upon proceedings being issued judgment on liability is conceded, this will have the effect of narrowing the issues.

If the solicitor is not minded to reconsider his percentage uplift, and bearing in mind the defendant will have no way of ascertaining what it might be, a defendant may wish to apply at the same time as the court enters judgment for the claimant on liability for an order that the proceedings be treated as concluded. This will bring the percentage uplift into the open, the base costs and additional liability being assessed and discharged, with the case then proceeding to its next stage, which in the illustration above would be quantification of value of the claim. The costs practice direction anticipates the possibility of proceedings being considered as concluded at an earlier stage than may be instantly realised. Practice Direction, paragraph 2.5 states: ‘The court may order or the parties may agree in writing that, although the proceedings are continuing, they will nevertheless be treated as concluded.’

To date there has been no guidance as to how the court could or should interpret this provision, but an application by a defendant might have to be considered after a trial on liability, quantum of damages being the only matter remaining in issue, or where liability is admitted after issue of proceedings.

8.28 Providing information about funding arrangements: Rule 44.15

If a party intends seeking to recover an additional liability he must give notice at the time he issues proceedings, serving notice with the claim form, or in the case of the defendant, upon filing his first document, which may be an acknowledgement of service or defence. Detailed provisions set out in Rule 44.15, and Practice Direction, paragraphs 10.1-2; and 19.1-19.5, to which reference should be made if a point arises.

8.29 Reduction or disallowance of the additional liability

101. At conclusion of a trial, or at a detailed assessment hearing, it may fall to you to decide whether to accept a paying party’s submission that the additional liability should be reduced or even disallowed, and although in due course there may be a body of jurisprudence to assist, for the time being your decision will be without guidance beyond the Rules and Practice Directions. Upon making a decision concerning the level of percentage uplift, or any other element in a claim for an additional liability, it is essential you give full and clear reasons in case of an appeal. For example, simply to say, ‘I allow the success fee at x%’ is not enough. The analysis and reasoning for your decision must be given.

Within the first months of additional liabilities being recoverable it appears a number of solicitors have chosen to enter into CFAs with a uniform success fee level of 100%, and this is unhelpful, for it tends to imply a failure to carry out a full risk assessment. Routine overstatement of the risk element is bound to lead to lengthy contested detailed assessment hearings, and you should remember the ability to award costs against a receiving party where appropriate to do so, and consider indemnity basis costs if a party has attempted to mislead.

In dealing with the overall costs of a case the court will first assess the base costs, and then turn to the success fee element. Although proportionality cannot be disregarded in respect of the base costs, the fact that when the success fee is added the total becomes disproportionate is not of itself reason to reduce the percentage. In reality it is probably inevitable that once the additional liability is added the costs will be disproportionate and indeed far higher than they ever could have been before the CPR came into force. It can only be assumed that this was contemplated by government when giving general consideration to the civil justice reforms.

You are not permitted to apply hindsight. The evidence adduced at trial may have demonstrated that the claimant had a cast-iron case, yet the solicitor had entered into the CFA with a success fee set at 75%. The degree of certainty in the claimant’s position might not have been reasonably ascertainable when the solicitor was instructed, and you must consider the assessment upon the basis of the facts and circumstances as they reasonably appeared to the solicitor or counsel when the funding agreement was entered into and at the time of any variation of the agreement (see Practice Direction, paragraph 11.7). The risk assessment of the receiving party’s solicitor will be produced to you, and explained. Cook on Costs 2000 includes a very practical discussion of the calculation of a risk assessment.

The words ‘reasonably appeared’ may be particularly important; to accept instructions without first carrying out some element of investigation may not be reasonable. In the illustration given earlier of a claimant suffering injury when a vehicle careered through the fence of his garden, the solicitor having accepted instructions with a 100% success fee, there was no assessment of risk. The solicitor either guessed or was opportunistic. That a lawyer is opportunistic is not to be disdained, but the court must consider what facts and circumstances ought reasonably to have been within the knowledge of the solicitor or barrister.

For some time a number of lawyers may specify higher success fees than they consider justified, on the customary basis that one asks for more than is expected to be recovered, an habitual practice as regards bills of costs over many years. Paying parties are likely to seek reduction more or less as a matter of course, and the court ought not to be too optimistic about receiving real assistance from either side, although hopefully a pattern will emerge.

Personal injury cases generally enjoy a high level of success - percentages in the region of 90-95% are often mentioned. It must follow that the success fee level should be modest, around 5-10%. Even that is likely to include provision for the irrecoverable elements. Commercial cases may be likely to be more speculative, and the possibility, probability even, is that both parties’ lawyers will be acting under CFAs, so you may wish to see the risk assessments of both sides when you come to deal with the success fee.

8.30 Legal expenses insurance

If a paying party can demonstrate a CFA receiving party had the benefit of legal expenses insurance, this may defeat a claim for an additional liability, for the lay client could have availed himself of the policy cover. One factor to be taken into account when deciding whether a percentage increase is reasonable is whether other methods of financing the costs were available to the receiving party (see Practice Direction 11.8(1)(c)). Legal expenses insurance is often included within ordinary motor or household policies.

8.31 After the event insurance

Insurance premiums will also be subject to consideration, and you will need to know how much of the premium covered the risk, and how much went in commissions. Lawyers may have an arrangement whereby they receive commission in some form or another for every policyholder introduced, and you should be told the amount.

8.32 CFAs and costs only proceedings under Rule 44.12A

Upon dealing with a detailed assessment ordered as a result of Rule 44.12A (Costs only proceedings), you are required to have regard to the time when and the extent to which the claim has been settled and to the fact that the claim has been settled without the need for proceedings (see Practice Direction, paragraph 17.8(2)). The intended effect of this provision may become clearer in due course, for it may appear to signal an invitation to reduce a success fee where a claim is realistically settled quickly and efficiently by the paying party.

Reduction or disallowance of additional liability against the paying party.

The Conditional Fee Agreements Regulations 2000, stipulates in regulation 3(2)(b) that if any amount of the percentage increase is disallowed on the ground of unreasonableness in view of the facts known, or which should have been known to the legal representative at the time the rate was set, the amount ceases to be payable under the agreement unless the court is satisfied that it should continue to be payable.

This provision is dealt with by Rule 44.16, the legal representative being enabled to make application at the time of the assessment for an order that the shortfall continue to be paid by his client, and the court may adjourn to allow the client to be notified of what is sought.

There will be occasions when the client is present at the hearing when the assessment takes place, but even then it may not be either reasonable or fair to make the assumption he fully understands the exchange between advocates and judge, so unless the client makes it absolutely clear that he comprehends the issues, and you are satisfied that he does, it is best to adjourn. The client may wish to take independent legal advice, and sometimes you will feel it right to suggest that he do so. At the very least you ought to consider suggesting a visit to the local Citizen’s Advice Bureau, and be able to give some indication as to where its office can be found. The lay person must not be rushed or harried into making a decision which might have a substantial financial impact.

8.34 The future

Recoverability of additional liabilities under funding arrangements is very much in its infancy, and development of a body of jurisprudence is likely to be unavoidable, so this section of the notes will almost certainly require updating.  The specialist costs publications will undoubtedly address any problems there appear to be in relation to quantifying recoverable additional liabilities.

8.35 Contingency fees

Debate is just beginning on the advantages of importing the general practice that prevails in the United States of America of contingency fees. This system enables people to make and defend claims without the risk of being required to pay the other party’s costs if they lose, and upon succeeding their own lawyer takes a percentage of the damages. Damages tend to be awarded at a higher level than in England and Wales, but it is being argued that the overall expense to insurers and the nation is no greater than the system that has prevailed in this country for a very long time. This discussion, however, has only just begun.

Fast Track Costs

8.36 Introduction

There is currently no provision for fixed costs in the fast track for pre-trial work, and the discussion below relates entirely to trial costs.

Fixed costs in respect of the trial are prescribed (see Rules 46.2-3), although the fixed trial costs are capable of being increased by an additional liability if a funding arrangement exists (see Rule 46.3(2A)). The percentage uplift of solicitor and counsel are likely to differ.

8.37 Rule 46.2(1)-(2)

‘(1) The following table shows the amount of fast track trial costs which the court may award (whether by summary or detailed assessment).

(2)     The court may not award more or less than the amount shown in the table except where:

a)it decides not to award any fast track costs; or
b) rule 46.3 applies,

but the court may apportion the amount awarded between the parties to reflect their respective degrees of success on the issues at trial.

Rule 46.3(2)-(4)

(2)     If:

a) in addition to the advocate, a party’s legal representative attends the trial;
b)the court considers that it was necessary for a legal representative to attend to assist the advocate; and the court awards fast track costs to that party, the court may award an additional £250 in respect of the legal representative’s attendance at the trial.

(2A)     The court may in addition award a sum representing an additional liability.

(3)     If the court considers that it is necessary to direct a separate trial of an issue then the court may award an additional amount in respect of the separate trial but that amount is limited in accordance with paragraph (4) of this rule.

(4)     The additional amount the court may award under paragraph (3) must not exceed two-thirds of the amount payable for that claim, subject to a minimum award of £350.’

The amounts specified for fixed trial costs include the advocate’s preparation for trial, getting to and from court, and conducting the trial, and are not capable of being increased if the hearing goes beyond the first day. Nor can the fixed trial costs be reduced if the hearing is brief. This remains the position even if the start of a fast track trial is delayed because an emergency application had to be dealt with, or the advocates in the trial requested and were granted time, in either situation causing it to run over into a second day.

You have no need to concern yourself with ascertaining a brief fee, and indeed should not do so even if invited to make enquiry.  The amount being paid to the receiving party’s advocate is irrelevant, the fixed trial costs prevailing.

The court has power to reduce the fast track trial costs if satisfied the party to whom costs are awarded has behaved unreasonably or improperly during the trial (see Rule 46.3(7)). There is also power to award a sum beyond the fixed amounts if the party ordered to pay costs has behaved improperly during the trial. Perceived misbehaviour by an advocate may result in the amount of costs awarded being reduced, although there are to date no reported decisions. Misbehaviour could include taking a number of bad points; prolonging the hearing unnecessarily, including examining or cross-examining in an inappropriate manner, or beyond an appropriate time; ignoring the trial timetable; taking the other side by surprise with some previously undisclosed evidence; or generally failing to act in a way compatible with furthering the overriding objective.

If when a trial is due to commence the advocates request some time, and you decide to permit this, you should indicate that the trial will be deemed to have begun when it was first called on for the purpose of the time allocated to it.

8.38 How much to allow when counsel is being paid less than the fixed trial costs

Sometimes it may be disclosed at conclusion of a fast track trial that counsel for the receiving party has appeared for a brief fee of less than the fixed trial costs provided for by Rule 46.2(1), the paying party arguing that in the circumstances the costs awarded should be limited to the amount on the brief. You should reject any submission inviting you to proceed in this way.

It is no concern of the paying party or the court what the advocate is paid, the amount to be allowed is the appropriate sum in the table of fixed trial costs. Unless the receiving party is publicly-funded, the costs belong to him and not the solicitor, who must therefore give credit to the client. Some forms of CFA may provide for the costs of hearings to belong to the solicitor and not the client.

8.39 Additional sum for litigator attending upon advocate: Rule 46.3(2)

In addition to the fixed costs set out in Rule 46.2 the court may award an additional £250 in respect of the legal representative’s attendance, provided it considers it was necessary for the legal representative to attend to assist the advocate.

At first sight this provision appears straightforward. As a general rule fast track trials will not require more than one legal representative to be in court, namely the advocate. However, although the position should change quite soon, at December 2000, if the advocate is attended by another person from the instructing solicitors’ office, the court is bound to accept that the person was ‘necessary’. This is because the Law Society’s Rules of Conduct require counsel be attended, and the Court of Appeal in Hughes v Kingston Upon Hull City Council [1992] 2 All ER 49 held that the Rules of Conduct have statutory effect. At the request of the Head of Civil Justice, the Law Society have amended to Rule, but until it has been through a prolonged approval process the revision cannot take effect. Upon implementation, the revised Rule will have the following effect.

126. Attendance on counsel will normally be dispensed with in fast track and small claims track civil cases except:

a) where the case is more complex than a typical small claims or fast track case;

b) where the determination of costs at the conclusion of proceedings requires the presence of the solicitor;

c) where one of the parties in the case is a child;

d) where the client is unable to understand the proceedings or give adequate instructions to counsel because of inadequate knowledge of English, mental illness or other mental or physical disability;

e) where counsel is representing more than one party;

f) where the client is likely to disrupt the proceedings if counsel were to appear alone;

g) where there are any issues likely to arise which question the client’s character or the solicitor’s conduct of the case;

h) where there is any other exceptional circumstance which makes it desirable that counsel be attended.

8.40 Litigants in person and fast track trial costs: Rule 46.3(5)

Where the party to whom fast track trial costs are to be awarded is a litigant in person the court will award:

a) if the litigant in person can prove financial loss, two thirds of the amount that would otherwise be awarded; or

b)if the litigant in person fails to prove financial loss, an amount in respect of the time spent reasonably doing the work at the rate specified in the costs practice direction (i.e. £9.25 per hour).

The effect of this provision is that a litigant in person successful in a matter which proceeds to trial in the fast track, if able to establish financial loss for his attendance in court, is entitled to two-thirds of the amount to be allowed a solicitor or barrister. So, if a claimant in person obtains judgment after trial for £8,000, the court being satisfied there is no reason to criticise conduct of the claim, if it is established that the claimant lost wages for the time away from work, he has the right to be awarded two-thirds of the fast track fixed trial costs; that is, a fixed sum.

The costs award for the trial in the example above will be £333.33, even if the actual loss is substantially less. You have no power to award a lesser sum.

8.41 Disposal hearings and the fast track

Upon entering judgment on liability for an amount to be decided by the court there is generally no need to allocate the case to a track, although you should do so if the value of the claim is within the scope of the small claims track, and a number of cases will justify allocation to the multi-track, if it can be shown the amount payable appears to be genuinely disputed upon grounds which appear to be substantial (see Practice Direction, paragraph 12.3). Many disposal hearings (assessments of damages) occupy a relatively short period of time, and it is inequitable to expect the paying party to be required to pay the fast trial fixed trial costs where the hearing has taken but an hour or so. This guidance may not sit comfortably with the remarks upon fast track trial costs for litigants in person, but sits well with your duty to exercise a discretion, where to do so will contain costs.

Summary Assessment

8.42 Introduction

The reader is also referred to the Supreme Court Taxing Office Guide to the Summary Assessment of Costs, reproduced at Annex 1 to this chapter.

Practice Direction, paragraph 13.2 states that the general rule is that the court should make a summary assessment of the costs:

a) at the conclusion of the trial of a case which has been dealt with on the fast track, in which case the order will deal with the costs of the whole claim; and

b) at the conclusion of any other hearing which has lasted not more than one day, in which case the order will deal with the costs of the application or matter to which the hearing related. If the hearing disposes of the claim, the order may deal with the costs of the whole claim;

c) in hearings in the Court of Appeal to which Paragraph 14 of the Practice Direction supplementing Part 52 (Appeals) applies;

d) unless there is good reason not to do so, e.g. where the paying party shows substantial grounds for disputing the sum claimed for costs that cannot be dealt with summarily or there is insufficient time to carry out a summary assessment.

If the paying party raises what appears to be a valid point in relation to a possible breach of the indemnity principle, an order for detailed assessment is appropriate. In R v Cardiff City Council, ex parte Brown, a detailed assessment was ordered because of arguments over the charging rates of the local authority’s ‘in house’ lawyers. The existence of a conditional fee agreement or other funding arrangement is not a good reason not to carry out a summary assessment. Section 14 of the Practice Direction contains the procedures to be followed.

Summary assessment was heralded as an innovation, but although under-used was available in the county court for many years in lower scale matters, and cases attracting Scale 2 costs. In county court Scale 1 cases, assessment was at the option of the receiving party, and could not be imposed by the court. Now that summary assessment is of universal application, judges at all levels have become used to quantifying the amounts payable in respect of costs at conclusion of hearings that have not gone beyond a day, and in the case of fast track trials the entire costs of the case. Summary assessment may also apply to multi-track trials if the hearing does not exceed a day. It is the actual length of hearing that brings a case within the category susceptible to summary assessment, not the estimated time.

If an order is made for ‘costs in case’, there is still an opportunity to specify the costs allowable to the party who eventually succeeds by carrying out a summary assessment of both parties’ costs.

Carrying out the summary assessment is not the job of the judge alone. The advocates should be able to provide precise information as to how the costs in a particular case or application have been calculated, including any details requested of particular attendances, their dates and times, possibly by a ‘back-up’ schedule, and if necessary producing a note.

You may be tired at the end of a case and lack enthusiasm for dealing with the costs, but this does not entitle you to order detailed assessment, which may be to the detriment of the lay clients on both sides. The receiving party will have to involve himself in the additional expenditure of preparing a bill, and will be kept out of his money for longer than he need be. If enforcement is necessary it is preferable to be able to pursue the total of the judgment debt and costs, instead of first recovering the debt, and several months later having to start once more on the enforcement process, this time for the costs. By then the paying party may have successfully divested himself of assets, paid other creditors, or disappeared.

As regards the paying party, he also may incur further expense in instructing his lawyers to deal with the bill, whilst interest on the costs will continue to accrue.

8.43

Where a summary assessment of costs is likely, the parties are required to prepare a written statement of the costs they intend to claim. This should follow Form N260 in the Schedule of Costs Forms (see Practice Direction, paragraph 13.5(3)). Form N260 is not altogether satisfactory, for letters and telephone calls are not separately identified, which assists in making it less clear how much time has actually been expended in a particular area of work. There are a significant number of practitioners given to charging routine letters out and telephone calls at a unit cost of other than the accepted six minutes, and 10 minutes is fairly commonplace. It is most improbable this will be brought to your attention, unless the paying party challenges the overall item, having been able to carry out the well-nigh impossible task of analysing the time claimed to have been spent, and distinguishing letters and telephone calls from personal attendances.

A costs claim in a different format should not be rejected, however, unless incomprehensible or very difficult to follow.

The statement of costs must be filed at court and copies served on any party against whom an order for payment of those costs is intended to be sought. The statement is to be filed and served as soon as possible and in any event not less than 24 hours before the date fixed for the hearing (see Practice Direction, paragraph 13.5(4)).

8.44 Sorry, we overlooked preparing/lodging the statement of costs!

It is not uncommon for costs statements to be overlooked, being filed and served late, if at all. It is surprisingly common for no costs statement to have been prepared until the day of the hearing, and even when this happens in total disregard of the Practice Direction it will be imprudent to refuse costs, although you may be able to reduce the amount allowed by being fairly stringent in your calculation of what is reasonable. Another option is to adjourn the summary assessment, the defaulting party being ordered to pay the costs occasioned by the adjournment. It is not practicable to advocate any particular course of action as against another, for the individual circumstances of the case will be persuasive as to whether you apply a restrictive approach to the costs which would otherwise have been recoverable to reflect the failure of the practitioner to comply with the rules and practice directions; or completely overlook the default which, save in exceptional circumstances, may be the least advisable course.

It is realistic to accept that if a party to litigation thoroughly deserves a costs order against him, there is an element of unfairness in penalising an otherwise successful party for his legal representative's incompetence, very possibly depriving him of some at least of the fruits of the litigation. The legal representative in many cases is likely to charge the client any shortfall on costs recovered, even if caused or increased by the lawyer's own inefficiency, and lay clients cannot be expected to fully appreciate the significance of exchanges between advocates and the judge. Often the client will not even be in attendance at the hearing of an interim application.

Where no statement has been prepared, and it is considered to be just that the party who succeeded on the application or claim should recover costs, it is usually practical to adjourn for five minutes to allow the advocate to put something together, although in those circumstances you are unlikely to allow anything for preparation of the statement, and may take a fairly narrow view of what is considered to be reasonable in amount and reasonably incurred. If the statement was served, albeit less than 24 hours before the hearing, you will have to decide whether the paying party is simply capitalising on the error, for if he saw the statement a short while before the hearing began it would have been possible to go through it and form a view. The judge, after all, will have to read, understand and analyse the costs statement within a couple of minutes, and is unlikely to find much difficulty in doing so.

If it is particularly late in the day, or a number of cases remain to be dealt with, a course of action you may choose to take is to adjourn the summary assessment until another day, and order the inadequately prepared receiving party to pay the costs of and occasioned by the adjournment. Although you may be able to make an assessment of the amount there and then, it is probably fairer if you permit the paying party to use the adjournment to prepare and serve a statement of the costs occasioned by the need for another hearing. Upon your assessing both parties' costs you should set off one against the other, ordering the balance to be paid (see Rule 44.3(9)(b)).

On 7 December 2000, Mr Justice Neuberger held a party could not be deprived of his costs for failing to serve a costs statement 24 hours before the hearing at which summary assessment would take place (see Macdonald v Taree Holdings Ltd [2000] TLR 907. Mr Macdonald had been successful in having set aside a statutory demand served upon him, but his application for costs was refused because no statement had been served 24 hours in advance of the hearing. The judge on appeal held that the failure was but one factor to take into account when deciding upon the principle of costs, and the court should ask itself what if any prejudice had there been to the paying party, and how should that prejudice be dealt with. The suggested approaches were first to contemplate a brief adjournment for the paying party to consider the schedule of costs, and if this was the appropriate course 'the judge should err in favour of awarding a higher figure'. The second stage would be to decide if the costs should be subject to detailed assessment, and the third whether the matter should be stood over for a summary assessment at a later date, or for the exercise to be carried out in writing.

The option of ordering detailed assessment may be of limited appeal, for the judge making an order in these terms will in any event have to take up time deciding how much should be paid immediately as an interim costs order. This may well be as time-consuming as getting on and finishing the job, and the judge should also invite argument upon the matter of interest on costs, which ordinarily runs from the date of the order, even though quantification does not take place until some time later, often many months. Furthermore, the detailed assessment proceedings in themselves involve substantial additional cost, and as it is very probable that these will have been necessitated by failure of the receiving party to be properly equipped on the original hearing, extensive argument may be expected as to who should pay the costs of the detailed assessment procedure.

Dealing with the matter as a paper exercise is unlikely very often to be viewed as an attractive option, save where the sums involved are modest. If you elect to make the summary assessment upon the parties' written representations it will be necessary for you to prepare a full written judgment in respect of each item challenged.

The paying party is required to have filed and served a statement of the costs he would have sought in the event of success, and in the absence of a statement from the receiving party this may be useful, if not as a template, at least as a starting point. You ought in any event to look at both parties' costs statements in all cases, for doing so will assist you in deciding whether time was properly expended, providing a more comprehensive 'feel' for the matter than looking at the claim of just the receiving party.

a paying party objects to the costs statement because it was served less than 24 hours before the hearing, ask for precise details as to how this has prejudiced him, for frequently it will not have done so, many advocates not even looking at the papers until the evening before the hearing or sometimes even later. Ask when the paying party filed and served his statement, for establishing this may sometimes be, indeed often is, most enlightening.

8.45 Summary assessment - children or patients

The court will not make a summary assessment of the costs of a receiving party who is a child or patient within the meaning of Part 21 unless the solicitor acting for that person has waived the right to further costs (see Practice Direction, paragraph 13.11(1)). It is, however, acceptable to make a summary assessment of the costs payable by a child or patient (see Practice Direction, paragraph 13.11(2)).